Utopia becomes Dystopia [Read-Only] - centervilleut.net · • UTOPIA is a case study in reckless...

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UTOPIA BECOMES DYSTOPIA ANALYSIS OF THE MACQUARIE -2014 PROPOSAL

Transcript of Utopia becomes Dystopia [Read-Only] - centervilleut.net · • UTOPIA is a case study in reckless...

UTOPIA BECOMES DYSTOPIAANALYSIS OF THE MACQUARIE -2014 PROPOSAL

WHAT ARE YOU USING THE INTERNET FOR?

•Email

•Business communications

•Video conferencing

•Online Shopping

•Data backups

•Video/Music streaming

•Playing games

•Social Media

How we are really using the Internet

SHOULD OUR NEIGHBORS SUBSIDIZE OUR

ENTERTAINMENT?

ESCALATION OF COMMITMENT • Current street value of Centerville’s UTOPIA Infrastructure = $8 Million• Current bond debt held by Centerville for UTOPIA = $16 Million • Current bond debt held by Centerville for UIA= $2.3 Million • Proposed PPP Utility Fees to be levied against Centerville residentswhich will be our third tax to build out UTOPIA outside of our town totals:

$53 Million

“The sky isn’t failing as some have claimed. Some of the rumors we have heard are that City finances are in trouble because of UTOPIA…Please be assured that our City is well-managed and is in great financial shape…Utopia presents challenges, but City expenditures on UTOPIA are less than 4% of the budget. The UTOPIA fiber optic network is available to all of our residents and UTOPIA is making progress.”-Mayor Russell, Councilmembers Lindstrom, Allen, Averett, and Higginson Oct 10, 2013 Open Letter to Centerville residents

CENTERVILLE TAXPAYER BURDENYear 1 2 3 4 5 26 27 28 29 30

Monthly to Resident $20.00 $20.50 $21.01 $21.54 $22.08 $37.08 $38.01 $38.96 $39.93 $40.93

Annual to Resident $240.00 $246.00 $252.15 $258.45 $264.92 $444.95 $456.07 $467.47 $479.16 $491.14

*Monthly to Centerville $99,920.00 $102,418.00 $104,978.45 $107,602.91 $110,292.98 $185,246.09 $189,877.25 $194,624.18 $199,489.78 $204,477.03

**Total Cost of Network from Utility fee collection

Annual to Centerville $1,199,040.00 $1,229,016.00 $1,259,741.40 $1,291,234.94 $1,323,515.81 $2,222,953.13 $2,278,526.96 $2,335,490.13 $2,393,877.39 $2,453,724.32 $52,641,097.20

*Mail addresses - does not include business upcharge or mdu discount

**Does not include current bond obligations

$16M UTOPIA, $2.8M UIA, and operating subsidies

Assumes Average CPI of 2.5%

Total Tax Commitment:$16,000,000+$2,800,000+$53,000,000(Utility Fee)=

$71,800,000Who would take out a ~30% interest 30 year mortgage on a $8 million dollar network?

USE OF PROCEEDS –UTILITY FEEPPP Funding

Network Year 1 2 3 4 5 28 29 30

Monthly Utility Fees $3,000,000.00 $3,075,000.00 $3,151,875.00 $3,230,671.88 $3,311,438.67 $5,843,400.05 $5,989,485.06 $6,139,222.18

Annual Intake $36,000,000.00 $36,900,000.00 $37,822,500.00 $38,768,062.50 $39,737,264.06 $70,120,800.66 $71,873,820.68 $73,670,666.19

Total Utility Fee Collections $1,580,497,313

Payback Year (2/3 Proceeds usage) Year 13 $327,782,338

Excess fees collected Years 13-30 $1,083,857,406

Unnecessary Tax Burden

$1 Billion

FROM HUMBLE ORIGINSQuestion:How is it possible that a ten year old network has managed to grow from only needing $85 million to a potential total tax burden of $1.9 Billion?• From 2004 until now, UTOPIA has managed to create $343 Million in tax liabilities.• The conversion to a PPP will create an additional $1.5 Billion in direct levies against every

household. • UTOPIA is a case study in reckless and incompetent management.• Historically ineffective UTOPIA and UIA oversight boards.

• No accountability for wasting millions of tax dollars.

Question:Many key board members for UTOPIA and UIA have been in office since 2004. How can taxpayers trust these same people to negotiate anything to the benefit of residents since they have proven ineffective to date?

RISK AND EXPOSURE

LEGAL

ETHICAL

WHAT HAPPENS IF WE SAY NO?

TECHNOLOGY

LEGAL

• No legal precedents exist for a fiber network PPP

(Remember UTOPIA was a first of its kind in the country, let’s not do that again)

• Illegal monopoly challenge by telecommunications providers (UTOPIA II)

• Class action lawsuits-Disparity in utility fee structure, non-essential ‘utility’

• Violates Section 253 of the Federal Telecom Act

• Unlawful barrier to entry

• Creates illegal price fixing syndicate stifling a competitive marketplace

• Basic service of 3MB has a set value of zero by the PPP.

• Only established ISPs will be able to absorb costs – no new players

ETHICAL

• Local government becomes the revenue collection arm of a private company.

• Turning off life critical utilities to force payment against a luxury service.

• Loss of employment– Smart phone or UTOPIA, there is no choice!

• Underprivileged residents will see zero benefit without computing hardware.

• PPP defines via data cap what your allowed use of the Internet is. This creates

the very digital divide UTOPIA wants to solve.

• Should Centerville continue to create new taxes for a FAILED enterprise?

• If Centerville’s finances are in good shape, why put them at risk?

• Are Cenerville’s entertainment needs worth $72 Million of taxpayer dollars?

WHAT HAPPENS IF WE SAY NO?

Centerville does not yoke its residents with $53 million in new taxes.

“Equity imbalance” of $8 million remains a baseless threat.

Centerville has zero obligation to financially offset UTOPIA’s poor management

decisions

Service to residents continues – we do not go dark

Centerville represents over 10% of the entire UTOPIA subscriber base

Debt service - Bonds are NOT callable. The network is not pledged, our tax dollars are.

‘You are correct that it is not a formal financial debt listed on any balance sheet. Centerville is not being called upon to repay this "equity imbalance" at this

time under the current structure.’ – Mayor Cutler

TECHNOLOGY

• High speed data is not a universal need – bad value proposition.

• Access was available through other means –smart phones, wireless, and

existing providers

• UTOPIA has and continues to use unrealistic assumptions about uptake

rates – 50% was never possible and is still doubtful

Question: Why were there so few signups at $99 installation fee West Valley City?

WIRED VERSUS WIRELESS

“Wireless access will be ubiquitous long before UTOPIA ever pays for itself”–George McEwan 2004

*The Mobile Network Through 2018

Mobile data traffic will reach the following milestones within the next five years.

● Monthly global mobile data traffic will surpass 15 exabytes by 2018.● The number of mobile-connected devices will exceed the world’s population by 2014.● The average mobile connection speed will surpass 2 Mbps by 2016.● Due to increased usage on smartphones, smartphones will reach 66 percent of mobile data traffic by 2018.● Monthly mobile tablet traffic will surpass 2.5 exabyte per month by 2018.● Tablets will exceed 15 percent of global mobile data traffic by 2016.● 4G traffic will be more than half of the total mobile traffic by 2018.

*http://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/white_paper_c11-520862.html

“Over two-thirds of the world’s mobile data traffic will be video by 2018”–Cisco Whitepaper 2014

BASIC 3MB SERVICE -20GB TRANSFER CAP

Data cap in 6 hours!!!!

THE MYTH OF THE GIGABIT

Majority of residents do not have the correct router- $250 to $350

Upstream throttling prevents throughput:

• Net Neutrality

• Bad network design

• Too many users

THE MYTH OF THE GIGABIT CONNECTION

A residence cannot consume a 1gb of data flow

0.5 Megabits per second - Required broadband connection speed

1.5 Megabits per second - Recommended broadband connection speed

3.0 Megabits per second - Recommended for SD quality

5.0 Megabits per second - Recommended for HD quality

25 Megabits per second - Recommended for 4K quality

200 HD Televisions at the same time!

THE MYTH OF THE GIGABIT

Let’s build up a super techie household that can actually use

1gb.

• 10 HD televisions running - 50 Mb (950 Mb remaining)

• 10 4K televisions -250 Mb (700 Mb remaining)

• 100 video Skype calls 150 Mb (550 Mb remaining)

• 100 computers backing up to iCloud 200 Mb (350 remaining)

• 70 concurrent HD video streams from your home web

server Finally out of bandwidth!

SUMMARY

• Centerville met its obligations to UTOPIA. We should not be forced to pay $52 Million more because of UTOPIA’s mismanagement.

• Residents are already burdened with two taxes because of UTOPIA, there is no justification to add a third.

• We don’t need a $1.9 Billion subsidy to watch TV.

• The private sector is currently providing solutions

• There are alternatives! Centerville needs to step away from the Macquarie high pressure, used car sales tactics. Stop spending exploratory dollars today – No to Milestone 2.

Utopia Deals of the Century Original Deal (2004) Macquarie (2014)

Proposal to build out a ubiquitous fiber network yes yes

City is wholly dependent on the proposing partner yes yes

Artificially short review window before decision is

required yes yes

Assurance of large-scale player(s) if it is accepted yes (AT&T + RUS) yes (unidentified "large companies")

High take rates projected yes (50 %) yes (30-50%)

Claims of being in best interest of Centerville yes yes

Expectation that cities/citizens would need to fund it no yes

Ultimately funded on the backs of the citizens yes yes

Suggestion that continuing would help pay off original

debt (w/ sufficient take rate) yes yes

Cities locked in to deal once it is accepted yes yes (short window now to buy our way out)

Peer pressure of "hard feelings" if not continuing w/

the group of cities yes (UIA & assessments) yes

Dire consequences predicted if Centerville doesn't

continue yes (lack of high speed internet) yes (huge debt & lack of high speed internet)

30 (or more) year commitment yes yes

Cost per home/ per month$8 increasing to $12.30 currently comes from City General

Fund to service original Utopia debt

$18-$20 direct utility fee increasing annually w/ no cap and

no appeal option. Additional rate covenants, etc. to assure

profit to Macquarie. Plus, $8 increasing to $12.30 from City

General Fund to service original Utopia debt.

20 GB data cap for basic service (monthly) No (data cap only per contract with individual ISP)

Yes (ALL service stops when cap is reached. After that, 911

calls might require prior separate agreement between

emergency agencies & Macquarie or the Wholesaler.)